Monopolies

Not surprisingly, money poured into tech-focused equity funds over the latest weekly reporting period, a stretch which captured Nvidia’s $1 trillion market cap milestone.

Investors plowed some $8.5 billion into tech stocks in the week to May 31, according to EPFR’s data. It was the largest weekly haul ever, BofA’s Michael Hartnett observed, suggesting investors are “position[ing] for a summer rip.”

The Nasdaq 100 is already ripping. In fact, the monthly performance disparity with the S&P was stupendous in May. Or stupid, depending on how you want to look at it.

It’s been decades since the big-tech gauge outperformed the main US benchmark by such a wide margin. Outside of the dot-com bubble, disparities of that magnitude are essentially unheard of.

The Nasdaq 100 is up 32% YTD versus 10% for the S&P. Nvidia and Microsoft are good for 1,050bps on the NDX side.

As discussed here on Thursday, the big-tech to small-caps comparison is night and day. The current ~30% three-month outperformance for tech has no precedent outside of the late 1990s (and the earliest days of 2000). BofA’s Hartnett pointed to the ratio of the NDX to the Russell, which is now at a record high.

“Monopolistic tech [is] winning [with] pricing power, squeez[ing] smaller suppliers,” he wrote, adding that the market is “bored of waiting for rates to cause recession, taking us “back to ‘biggest companies = biggest margins = biggest PE’s.'”

I’d note that big US tech is actually oligopolistic not monopolistic. However, Nvidia is currently an A.I. monopoly, at least on the “picks and shovels” side, which is a pretty big deal when it comes to this particular gold rush, given that not just anyone can produce good picks and shovels. I’m reminded a bit of the exchange between Armand Assante’s Dominic Cattano and Denzel Washington’s Frank Lucas in Ridley Scott’s crime epic American Gangster: “What do you think of monopolies Frank? Nobody wants to compete. Not with a monopoly.”

If you’re wondering whether Hartnett is still bearish, the answer is generally “yes.” Notwithstanding Savita Subramanian’s higher price target for the S&P, Hartnett says fade SPX 4,200. “Tech took us from 3,800 to 4,200, now you need something else to catch,” he wrote.

On Thursday, Subramanian, his colleague, reminded clients that “It has been a bullish signal when Wall Street strategists were extremely bearish, and vice versa.”